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Sector Pairs Trading Using Returns as Selection Criteria

Posted on August 4, 2024 By 
Pairs trading is a market-neutral strategy that involves simultaneously buying and selling two correlated assets to exploit their price discrepancies. The strategy aims to profit from the relative movements between the two assets, regardless of the overall market direction. Pairs trading requires careful selection of pairs and constant monitoring to …
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Using Gold Futures to Hedge Equity Portfolios

Posted on July 31, 2024 By 
Hedging is a risk management strategy used to offset potential losses in one investment by taking an opposing position in a related asset. By using financial instruments such as options, futures, or other derivatives, investors can protect their portfolios from adverse price movements. The primary goal of hedging is not …
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Airbag Options: What They Are and How to Price

Posted on July 27, 2024 By 
Airbag options are a new structured product that has gained popularity among investors in the over-the-counter derivatives market. They offer protection against downside losses, similar to how an airbag protects in a car crash. Airbag options provide investors with downside risk protection in the event of a market “collision.” However, …
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How Overfitted Trading Strategies Perform Out-of-Sample

Posted on July 23, 2024 By 
Machine learning is a subset of artificial intelligence that involves training algorithms to learn patterns from data and make predictions or decisions without being explicitly programmed. It encompasses a range of techniques, from simple linear regression to complex neural networks, and is used in various applications such as image and …
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Volatility Risk Premium Across Different Asset Classes

Posted on July 15, 2024 By 
The volatility risk premium (VRP) is the compensation investors receive for bearing the risk associated with fluctuations in market volatility, typically measured as the difference between implied and realized volatility. The VRP in equities has been studied extensively. However, relatively little attention has been paid to the VRP in other …
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Implied Volatilities From a Behavioural Finance Perspective

Posted on July 11, 2024 By 
We have discussed at length the implied volatility and its relationships with realized volatility, volatility skew, dividend yield, and correlations. Moreover, it is interesting to examine implied volatility from a behavioural finance perspective. Reference studied the relationship between various countries’ implied volatilities and their cultural characteristics. Specifically, it utilized …
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Does Momentum Anomaly Really Exist?

Posted on July 7, 2024 By 
The momentum anomaly in the stock market refers to the phenomenon where stocks that have performed well in the past continue to perform well in the near future, and those that have performed poorly continue to underperform. Momentum strategies exploit this anomaly by buying stocks with high past returns and …
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